Solar has been undoubtedly getting cheaper, but last week First Solar Inc. announced a project that might produce rates that are as good as a utility buying power from a coal-fired plant.

That means it’s really cheap. Close to as cheap as natural gas, whose price has been driven down relentlessly by shale mining pretty much in every state but Arizona it seems.

There’s some caveats to that, of course, because for solar to be cheaper than fossil fuels there has to be some catch, or specifically a credit.

First, there was the deal. Last week, the Tempe-based solar manufacturer and developer (Nasdaq: FSLR) announced it was buying a 50-megawatt project called Macho Springs Solar from Element Power Solar. Once it is built, it would be New Mexico’s largest utility solar system. The deal has power planned to be purchased by El Paso Electric.

It was in the regulatory filings that items showed up that made the solar industry very excited. The utility reported it would buy power from the solar plant for 5.79 cents per kilowatt-hour, or the amount of power needed to supply one home with one hour of electricity.

According to the U.S. Energy Information Administration, New Mexico’s retail rates for power are about 8.71 cents per kilowatt-hour. Arizona’s are a bit higher at 9.73 cents per kilowatt hour, meaning it’s harder for solar to take hold in New Mexico with lower prices.

But First Solar’s price, one the company won’t comment on publicly, is more than 2 cents lower than some of the best deals it has going for large plants in California.

What’s helping First Solar is a production tax credit of about 2.7 cents per kilowatt-hour that New Mexico has had in place since 2002. Traditionally a wind power state, New Mexico has developed production tax credits much like a federal credit that pays out based on energy produced. Most other state tax credits are based on system prices and capital investment.

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